You may have seen that Crown Currency Exchange, a travel cash supplier based in Cornwall,recently collapsed. This is prompting questions over whether your holiday travel money provider is safe, we take a look.
Firstly, as Stephen Heath, Chief Executive of prepaid currency card specialist FairFX.com explains: “In the travel money marketplace there are 4 main ways that people spend overseas. These are:-
- Travel Cash – which is bought at a Bureau de Change or sent in the post
- Travellers Cheques – perhaps the ‘old’ form of getting your holiday travel money. There are now ever decreasing volumes of travellers cheques issued and very “old economy”
- Prepaid currency Card – offered by such as FairFX, these are rapidly increasing in number and considered by many to be how to get the best deal on travel money
- £ Debit and Credit Cards – simply spending using a £ Sterling card and incur the fees from currency conversion
“Crown was firmly within the first category – Travel Cash – and within that was relatively unique. Crown offered travel money that you paid for now in advance of travelling and received the foreign currency sometime (up to 9 months later) in the future.
“Crown’s rates got more attractive the further in the future the consumer was buying for. This is like a “forward” contract in the FX market although the rates that Crown were offering for longer-dated future delivery were surprisingly attractive to consumers.
“It is this peculiarity of Crown that will have contributed to them being able to end up in the position of having an estimated £20 million of delivery liabilities versus only £3 million of available cash because as long as new orders were coming in then they could meet their immediate obligations.”
The majority of travel cash providers do not follow the Crown model – rather you exchange cash in person at bureau de changes or get delivery next day in the post.
This means firstly that there is considerably less risk of other providers running into these difficulties and secondly, even if they did, very few customers would be effected because the transactions are all “same day”.
This collapse of a travel cash provider perhaps helps emphasise one of the attractions of a prepaid currency card for your holiday travel money.
Most of these cards, including FairFX, are issued by Newcastle Building Society (NBS) and the funds loaded on to cards are instantly credited at NBS on behalf of cardholders.
NBS is regulated under the Building Societies Act of 1986 as amended at the end of 2003, as well as by the Financial Services Authority (known as the FSA).
Under this Act it stipulates that a company can only be called a Building Society if ‘its purpose or principal purpose is that of making loans which are secured by residential property and are funded substantially by its members’. Also at least 50% of the funds raised by a Building Society must be raised from deposits from the members. In this respect, the Building Societies are much more conservative than Banks and therefore less risky.
So this means that in the unlikely event of NBS running into financial difficulties, the money would be protected. In fact, NBS themselves have said that they are able to guarantee the safety of all prepaid card balances as this money is held completely separately in a designated client account, which would not be affected even in the event of the Society experiencing financial difficulty.”
So all in all, it seems using a prepaid currency card for your holiday travel money is well worth considering.